The news of Compaq merging into Hewlett Packard set many Indians wondering about the MNC strategies. This merger highlighted how at the slightest hint of a risk, MNC s are willing to shed their years of brand building efforts and walk out of the business. Such a strategy is unthinkable in the Indian context where there is an entrepreneurial attachment to most of the industrial ventures. When confronted with difficulties, Indian companies try to weather the storm by any means and quitting is the last option ever considered. In the processes, the health of an industry may deteriorate and the Company may even become irretrievable. However there are also several instances of Companies coming out of difficulties and resurrecting themselves. In the light of the Compaq-HP merger it has become necessary for Indian corporates also to give a serious thought to the self effacing mergers as a strategy for consolidation and growth. Investors should therefore be ever watchful for decisions that may alter the value of their investments overnight. 

In the meantime, the Indian Government was presented with a report from the International consultancy Company McKinsey Global Institute, on how to revive the economy. While it is heartening to note that the report speaks of the possibility of reaching growth rates of 10 % GDP, the prescription of further liberalization, land reforms, labour law changes, dismantling of regulations, encouragement of patent regime etc indicate that the report may be loaded with a hidden agenda to extract further liberalization of the Indian economy, and in particular allowing MNC s a greater role in agricultural. It is necessary for the Government to avoid being trapped into taking decisions that though may appear good on paper may not suit the Indian requirements.
In a considered reaction, the finance minister has stated that the Government would try to kick start the economy through stepping up of Government investments in infrastructure. The FM has also agreed that the Government would not resort to witch hunting while trying to improve the working of the corporate sector. If these promises are honoured, many of the industries will be able to focus on whatever little business prospects remain for them. Fortunately for the Government the good monsoons indicate a possible revival of consumer demand because of buying surplus in rural India.
Reacting favourably to these announcements, the stock markets recovered some of its losses to close marginally down on Friday. A better trend in old-economy stocks, particularly pharma and cement counters and a minor recovery in infotech stocks brought the Sensex back to close at 3196, a 5 month low. Investors however were left guessing which way the market is heading in the coming days.

In this difficult market scenario it appears that size and diversity of operations are essential for survival, and investors can look at large diversified companies to park their funds until individual sectors become safer for investments. In this context, we can take a look at ITC ltd, one of India’s largest conglomerates.

After the Government regulationson Banning of Cigarette advertisements, it was feared that this tobacco major might face some problems. However, the latest financial results indicate that the Company has not been affected adversely by the order of the Government. It has infact posted a 20 % growth in profits for the latest quarter compared to the previous year. The EPS on an annualized basis has increased from 41 to 49 during the quarter.

 Financial Highlights of ITC Ltd
 

Particulars	1999	2000	2001	2002 (Q1)
Sales (Rs cr)	7701	8069	8816	2252
Net Profit (Rs cr)	623	792	1006	300
Equity (Rs cr)	245	245	245	245
EPS (RS)	25	32	41	49

ITC Ltd is the largest manufacturer of cigarettes in India. It is a member of BAT Group of UK, which holds 38 per cent stake in ITC. Cigarettes constitute over 87 per cent of ITC`s turnover, followed by agri products and unmanufactured tobacco. The Company has convened a board meeting on September 21, 2001 to consider the amalgamation with its subsidiary ITC Bhadrachalam Paperboards. This is expected to add  Rs 130-40 crore gain at the post-tax profit level in the year of merger itself. As a future strategy, ITC is  looking at marketing and distribution as a line of business by itself. ITC is also ready to buy businesses, considering that it has a huge cash hoard. The company is web enabling all its business processes including cigarettes and tobacco. 

These initiatives will lead to further strengthening of the revenue streams of the Company making it a reasonably safe investment proposition at the present price level of  Rs 750/-

Na.Vijayashankar
September 8, 2001